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Bear of the Day: MicroStrategy Incorporated (MSTR)

Zacks

MicroStrategy Incorporated (MSTR) is a leading worldwide provider of business intelligence software, today announced that GT Nexus has selected MicroStrategy to power the customer-facing analytics and reporting capabilities on its Global Logistics portal. The GT Nexus portal is an on demand technology platform that is used by importers, exporters, transportation carriers, suppliers, banks, and other partners to manage goods that are moving around the world. The GT Nexus system captures and stores hard-to-get data associated with global supply chains, and then fuels a range of Web applications that can be used by constituents to lower supply chain costs and improve control.

Recent Earnings Report

Management recently reported Q2 17 earnings where they significantly missed the Zacks consensus earnings estimate (actual of $0.96 vs consensus of $1.60), and missed the Zacks consensus revenue estimate ($121 million actual vs. consensus of $126 million).

On a year over year basis the company saw losses in the following; revenues -2.1%, product license and subscription services revenues -12.1%, product support revenues -1.0%, income from operations -25.6%, net income -41.3%, and non-GAAP income from operations -21.5%. The company also saw operating expenses increase by +3.3%.

The major drag on the company has been license sales. CEO Michael Taylor commented on the situation, “I'm disappointed with the license sales and the growth rate in the first two quarters of 2017. And we've got a hard time growing given the current level of noise in the marketplace combined with the expanding universe of customer requirements. And we're going to have a hard time growing if we continue to spend at our current rate on technology and marketing. The noise in the marketplace doesn't just come from our competitors, it's coming from just about all the mid-size and emerging enterprise software companies, they're all fighting for a share of wallet within the enterprise itself.”

CFO’s Take of the Quarter’s Results

According to Phong Le, CFO, “On to our financial results for second quarter. Overall, our product license revenue results in Q2 2017 were below our expectations. However, we continued to see strength in other areas of our business including cloud, maintenance renewal and consulting and education. A shortfall in product license revenue contributed to declines in overall revenue, operating income and diluted earnings per share. Product license revenues declined 19% year over year. Total revenues declined 2% year over year. Operating income declined 26% year over year and diluted earnings per share declined 41% year over year. Description services revenue grew 7%, services revenue increased 9% year over year and we continued to experience strong maintenance renewal rate.”

Price and Earnings Consensus Graph

As you can see in the graph below the recent earnings report caused the stock price and future earnings estimates to significantly decline.

MicroStrategy Incorporated Price and Consensus

MicroStrategy Incorporated Price and Consensus | MicroStrategy Incorporated Quote

Declining Earnings Estimates

Over the past 30 days earnings estimates for Q3 17, Q4 17, FY 17 and FY 18 have all seen large negative revisions; Q3 17 fell from $1.97 to $1.10, Q4 17 dropped from $2.43 to $1.22, FY 17 declined from $7.43 to $4.54, and FY 18 plummeted from $7.68 to $2.64.

If you are inclined to invest in the Computer Software segment, you would be best served by looking into either Dassault Systemes SA (DASTY), or Progress Software (PRGS), both of whom currently carry a Zacks Rank #1.


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